Post-Employment Benefits | 12 Months Ended |
Dec. 31, 2013 |
Post-Employment Benefits | ' |
Post-Employment Benefits | ' |
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Note 10 Post-Employment Benefits |
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AbbVie sponsors various pension and other post-employment benefit plans, including defined benefit, defined contribution and termination indemnity plans, which cover most employees worldwide. In addition, AbbVie provides medical benefits, primarily to eligible U.S. retirees, through other post-retirement benefit plans. |
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Abbott Sponsored Plans |
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Prior to separation, AbbVie employees participated in certain U.S. and international defined benefit pension and other post-employment (OPEB) plans sponsored by Abbott. These plans included participants of Abbott's other businesses and were accounted for as multiemployer benefit plans in AbbVie's combined financial statements as of and for the years ended December 31, 2012 and 2011. As a result, no asset or liability was recorded by AbbVie in the historical combined balance sheets through December 31, 2012 to recognize the funded status of these plans. Effective January 1, 2013, in connection with the separation of AbbVie from Abbott, these plans were separated and AbbVie assumed net benefit plan obligations that were previously provided by Abbott. For Abbott-sponsored defined benefit and post-employment benefit plans, AbbVie recorded expenses of $200 million in 2012 and $150 million in 2011. Abbott made voluntary contributions to its defined benefit pension plans that AbbVie accounted for as multiemployer benefit plans totaling $310 million and $289 million in 2012 and 2011, respectively. The multiemployer benefit pension plans were approximately 94 percent funded as of December 31, 2012. |
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AbbVie Sponsored Plans |
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AbbVie is the sole sponsor of certain other defined benefit pension and other post-employment plans, which have been reflected in the consolidated balance sheet as of December 31, 2013 and the combined balance sheet as of December 31, 2012. During 2012, in preparation for the separation from Abbott, certain defined benefit pension and other post-employment benefit plans were assumed by AbbVie and were reflected in the December 31, 2012 combined balance sheet. AbbVie made voluntary contributions to the AbbVie sponsored pension plans of $46 million and $64 million in 2012 and 2011, respectively. |
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Prior to the separation, AbbVie employees participated in the Abbott Laboratories Annuity Retirement Plan, which was Abbott's principal domestic defined benefit pension plan. In connection with the separation, AbbVie established the AbbVie Pension Plan, which is AbbVie's principal domestic defined benefit pension plan, with substantially the same terms as the Abbott Laboratories Annuity Retirement Plan. AbbVie employees who were eligible to participate in the Abbott Laboratories Annuity Retirement Plan on December 31, 2012 automatically became eligible for the AbbVie Pension Plan. During the first quarter of 2013, the AbbVie Pension Plan assumed the obligations and related assets for its employees from the Abbott Laboratories Annuity Retirement Plan. In the first quarter of 2013, AbbVie made a voluntary contribution of $145 million this plan. AbbVie also made a voluntary contribution of $370 million to this plan subsequent to December 31, 2013. |
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The benefit plan information in the table below pertains to the global AbbVie-sponsored defined benefit pension and other post-employment plans. |
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| | Defined | | Other | |
benefit plans | post-employment |
| plans |
as of and for the years ended December 31 (in millions) | | 2013 | | 2012 | | 2013 | | 2012 | |
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Projected benefit obligations | | | | | | | | | | | | | |
Beginning of period | | $ | 1,669 | | $ | 649 | | $ | 231 | | $ | — | |
Service cost | | | 184 | | | 21 | | | 23 | | | — | |
Interest cost | | | 196 | | | 38 | | | 19 | | | — | |
Employee contributions | | | 1 | | | — | | | — | | | — | |
Plan amendments | | | (1 | ) | | — | | | — | | | — | |
Assumption of plan liabilities | | | 3,009 | | | 797 | | | 209 | | | 231 | |
Removal of plans | | | — | | | — | | | (12 | ) | | — | |
Actuarial (gain) loss | | | (455 | ) | | 182 | | | (55 | ) | | — | |
Benefits paid | | | (146 | ) | | (40 | ) | | (12 | ) | | — | |
Other, primarily foreign currency translation loss | | | 27 | | | 22 | | | — | | | — | |
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End of period | | $ | 4,484 | | $ | 1,669 | | $ | 403 | | $ | 231 | |
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Fair value of plan assets | | | | | | | | | | | | | |
Beginning of period | | $ | 898 | | $ | 230 | | $ | — | | $ | — | |
Actual return on plan assets | | | 491 | | | 42 | | | — | | | — | |
Company contributions | | | 198 | | | 46 | | | 12 | | | — | |
Employee contributions | | | 1 | | | — | | | — | | | — | |
Assumption of plan assets | | | 2,221 | | | 620 | | | — | | | — | |
Benefits paid | | | (146 | ) | | (40 | ) | | (12 | ) | | — | |
Other, primarily foreign currency translation gain | | | 3 | | | — | | | — | | | — | |
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End of period | | $ | 3,666 | | $ | 898 | | | — | | | — | |
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Funded status at December 31 | | $ | (818 | ) | $ | (771 | ) | $ | (403 | ) | $ | (231 | ) |
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Amounts recognized in consolidated balance sheets | | | | | | | | | | | | | |
Other assets | | $ | 442 | | $ | 11 | | $ | — | | $ | — | |
Current liabilities | | | (27 | ) | | (27 | ) | | (8 | ) | | (7 | ) |
Long-term liabilities | | | (1,233 | ) | | (755 | ) | | (395 | ) | | (224 | ) |
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Net liability at December 31 | | $ | (818 | ) | $ | (771 | ) | $ | (403 | ) | $ | (231 | ) |
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Actuarial losses, net | | $ | 1,194 | | $ | 526 | | $ | 74 | | $ | 69 | |
Prior service cost | | | 22 | | | 10 | | | (47 | ) | | (1 | ) |
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AOCI at December 31 | | $ | 1,216 | | $ | 536 | | $ | 27 | | $ | 68 | |
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The projected benefit obligations (PBO) in the table above included $1.2 billion and $1.1 billion at December 31, 2013 and 2012, respectively, related to international defined benefit pension plans, a number of which generally are not funded, in accordance with local regulations. Benefit payments under those plans are funded from company assets. |
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For plans reflected in the table above, the accumulated benefit obligations (ABO) were $3.9 billion and $1.5 billion at December 31, 2013 and 2012, respectively. For those plans reflected in the table above in which the ABO exceeded plan assets at December 31, 2013, the ABO, PBO and aggregate plan assets were $1.8 billion, $2.4 billion and $1.1 billion, respectively. |
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Amounts Recognized in AOCI and OCI |
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The defined benefit pension and other post-employment plans' actuarial gains or losses and prior service costs or credits not yet recognized in net periodic benefit cost are recognized on a net-of-tax basis in AOCI and will be amortized to net periodic benefit cost in the future. The following is a summary of the pretax gains and losses included in OCI. |
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years ended December 31 (in millions) | | 2013 | | 2012 | | 2011 | | | | |
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Defined benefit plans | | | | | | | | | | | | | |
Actuarial (gain) loss | | $ | (715 | ) | $ | 98 | | | 19 | | | | |
Prior service cost | | | 15 | | | 9 | | | — | | | | |
Amortization of actuarial losses and prior service costs | | | (114 | ) | | (7 | ) | | (2 | ) | | | |
Foreign exchange loss | | | 2 | | | 5 | | | 2 | | | | |
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Total pretax (gain) loss recognized in OCI | | $ | (812 | ) | $ | 105 | | $ | 19 | | | | |
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Other post-employment plans | | | | | | | | | | | | | |
Actuarial (gain) loss | | $ | (42 | ) | $ | 69 | | $ | — | | | | |
Prior service cost | | | (53 | ) | | — | | | — | | | | |
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Total pretax (gain) loss recognized in OCI | | $ | (95 | ) | $ | 69 | | $ | — | | | | |
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The pretax amount of actuarial (gain) loss and prior service cost included in AOCI at December 31, 2013 that is expected to be recognized in the net periodic benefit cost in 2014 is $69 million for defined benefit plans and $(4) million for other post-employment plans. |
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Net Periodic Benefit Cost |
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years ended December 31 (in millions) | | 2013 | | 2012 | | 2011 | | | | |
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Defined benefit plans | | | | | | | | | | | | | |
Service cost | | $ | 184 | | $ | 21 | | $ | 18 | | | | |
Interest cost | | | 196 | | | 38 | | | 32 | | | | |
Expected return on plan assets | | | (259 | ) | | (29 | ) | | (21 | ) | | | |
Amortization of actuarial losses and prior service costs | | | 114 | | | 7 | | | 2 | | | | |
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Net periodic pension benefit cost | | $ | 235 | | $ | 37 | | $ | 31 | | | | |
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Other post-employment plans | | | | | | | | | | | | | |
Service cost | | $ | 23 | | | — | | | — | | | | |
Interest cost | | | 19 | | | — | | | — | | | | |
Amortization of actuarial gain and prior service costs | | | (1 | ) | | — | | | — | | | | |
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Net periodic OPEB cost | | $ | 41 | | $ | — | | $ | — | | | | |
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Weighted-Average Assumptions Used in Determining Benefit Obligations at the Measurement Date |
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| | 2013 | | 2012 | | | | | | | |
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Defined benefit plans | | | | | | | | | | | | | |
Discount rate | | | 4.9 | % | | 4 | % | | | | | | |
Rate of compensation increases | | | 5 | % | | 3.9 | % | | | | | | |
Other post-employment plans | | | | | | | | | | | | | |
Discount rate | | | 5.3 | % | | 4.3 | % | | | | | | |
Rate of compensation increases | | | 6 | % | | 3.5 | % | | | | | | |
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The assumptions above, which were used in calculating the December 31, 2013 measurement date benefit obligations, will be used in the calculation of net periodic benefit cost in 2014. |
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Weighted-Average Assumptions Used in Determining Net Periodic Benefit Cost |
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| | 2013 | | 2012 | | 2011 | | | | |
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Defined benefit plans | | | | | | | | | | | | | |
Discount rate | | | 4.3 | % | | 5.1 | % | | 5 | % | | | |
Expected long-term rate of return on plan assets | | | 8.2 | % | | 8.5 | % | | 8.5 | % | | | |
Expected rate of change in compensation | | | 5 | % | | 4.2 | % | | 4.1 | % | | | |
Other post-employment plans | | | | | | | | | | | | | |
Discount rate | | | 4.5 | % | | N/A | | | N/A | | | | |
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For purposes of measuring post-retirement health care obligations as of the measurement date, the Company assumed a 7.9% pre-65 (7.6% post-65) annual rate of increase in the per capita cost of covered health care benefits. The rate was assumed to decrease gradually to 5% in 2051 and remain at that level thereafter. For purposes of measuring post-retirement health care costs for 2013, the company assumed a 7.9% pre-65 (7.6% post-65) annual rate of increase in the per capita cost of covered health care benefits. The rate was assumed to decrease gradually to 5% for 2051 and remain at that level thereafter. |
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Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. As of December 31, 2013, a 1% change in assumed health care cost trend rates would have the following effects: |
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| | One percentage | | | | | | | |
point | | | | | | |
year ended December 31, 2013 (in millions) | | Increase | | Decrease | | | | | | | |
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Service cost and interest cost | | $ | 8 | | $ | (6 | ) | | | | | | |
Projected benefit obligation | | | 71 | | | (56 | ) | | | | | | |
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Defined Benefit Pension Plan Assets |
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(in millions) | | Balance at | | Quoted prices in | | Significant other | | Significant | |
December 31, | active markets for | observable | unobservable |
2013 | identical assets | inputs | inputs |
| (Level 1) | (Level 2) | (Level 3) |
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Equities | | | | | | | | | | | | | |
U.S. large cap(a) | | $ | 1,197 | | $ | 576 | | $ | 621 | | $ | — | |
U.S. mid cap(b) | | | 244 | | | 62 | | | 182 | | | — | |
International(c) | | | 614 | | | 225 | | | 389 | | | — | |
Fixed income securities | | | | | | | | | | | | | |
U.S. government securities(d) | | | 292 | | | 35 | | | 257 | | | — | |
Corporate debt instruments(e) | | | 212 | | | 57 | | | 155 | | | — | |
Government Securities International | | | 216 | | | 159 | | | 57 | | | — | |
Other | | | 52 | | | 45 | | | 7 | | | — | |
Absolute return funds(f) | | | 704 | | | 3 | | | 290 | | | 411 | |
Real assets | | | 70 | | | 8 | | | 62 | | | — | |
Other(g) | | | 65 | | | 62 | | | 3 | | | — | |
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Fair value of plan assets | | $ | 3,666 | | $ | 1,232 | | $ | 2,023 | | $ | 411 | |
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| | | | Basis of fair value measurement | |
(in millions) | | Balance at | | Quoted prices in | | Significant other | | Significant | |
December 31, | active markets for | observable | unobservable |
2012 | identical assets | inputs | inputs |
| (Level 1) | (Level 2) | (Level 3) |
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Equities | | | | | | | | | | | | | |
U.S. large cap(a) | | $ | 232 | | $ | 232 | | $ | — | | $ | — | |
U.S. mid cap(b) | | | 45 | | | 31 | | | 14 | | | — | |
International(c) | | | 276 | | | 234 | | | 42 | | | — | |
Fixed income securities | | | | | | | | | | | | | |
U.S. government securities(d) | | | 73 | | | 24 | | | 49 | | | — | |
Corporate debt instruments(e) | | | 109 | | | 93 | | | 16 | | | — | |
Government Securities International | | | 26 | | | 26 | | | — | | | — | |
Other | | | 2 | | | 1 | | | 1 | | | — | |
Absolute return funds(f) | | | 90 | | | 22 | | | 37 | | | 31 | |
Real assets | | | 18 | | | 9 | | | 7 | | | 2 | |
Other(g) | | | 27 | | | 27 | | | — | | | — | |
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Fair value of plan assets | | $ | 898 | | $ | 699 | | $ | 166 | | $ | 33 | |
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(a) |
A mix of pooled index funds and actively managed equity accounts that are benchmarked to various large cap indices. |
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(b) |
A mix of pooled index funds and actively managed equity accounts that are benchmarked to various mid cap indices. |
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(c) |
A mix of pooled index funds and actively managed equity accounts that are benchmarked to various non-US equity indices in both developed and emerging markets. |
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(d) |
Securities held by pooled index funds and mutual funds. |
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(e) |
Securities held by actively managed accounts, pooled index funds, and mutual funds. |
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(f) |
Funds having global mandates with the flexibility to allocate capital broadly across a wide range of asset classes and strategies, including but not limited to equities, fixed income, commodities, financial futures, currencies, and other securities, with objectives to outperform agreed upon benchmarks of specific return and volatility targets. |
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(g) |
Investments in cash and cash equivalents. |
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Equities that are valued using quoted prices are valued at the published market prices. Equities in a common collective trust or a registered investment company that are valued using significant other observable inputs are valued at the net asset value (NAV) provided by the fund administrator. The NAV is based on the value of the underlying assets owned by the fund minus its liabilities. Fixed income securities that are valued using significant other observable inputs are valued at prices obtained from independent financial service industry-recognized vendors. Absolute return funds and commodities are valued at the NAV provided by the fund administrator. |
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The following table summarizes the change in the value of plan assets that are measured using significant unobservable inputs (Level 3). |
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(in millions) | | 2013 | | 2012 | | | | | | | |
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Balance as of January 1 | | $ | 33 | | $ | 27 | | | | | | | |
Transfers in from other categories | | | — | | | — | | | | | | | |
Actual return on plan assets on hand at year end | | | 4 | | | 3 | | | | | | | |
Assumption of level 3 assets | | | 372 | | | — | | | | | | | |
Purchases, sales and settlements, net | | | 2 | | | 3 | | | | | | | |
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Balance as of December 31 | | $ | 411 | | $ | 33 | | | | | | | |
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The investment mix of equity securities, fixed income and other asset allocation strategies is based upon achieving a desired return, balancing higher return, more volatile equity securities, and lower return, less volatile fixed income securities. Investment allocations are established for each plan and are generally made across a range of markets, industry sectors, capitalization sizes, and in the case of fixed income securities, maturities and credit quality. The target investment allocations for the AbbVie Pension Plan is 50% in equity securities, 20% in fixed income securities and 30% in asset allocation strategies and other holdings. There are no known significant concentrations of risk in the plan assets of the AbbVie Pension Plan or any other plans' assets. |
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The plans' expected return on assets, as shown above, is based on management's expectations of long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, management considers historical and expected returns for the asset classes in which the plans are invested, as well as current economic and capital market conditions. |
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Expected Pension and Other Post-Employment Payments |
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(in millions) | | Defined | | Other | | | | | | | |
benefit plans | post-employment | | | | | | |
| plans | | | | | | |
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2014 | | $ | 154 | | $ | 9 | | | | | | | |
2015 | | | 162 | | | 11 | | | | | | | |
2016 | | | 170 | | | 13 | | | | | | | |
2017 | | | 180 | | | 15 | | | | | | | |
2018 | | | 192 | | | 18 | | | | | | | |
2019 to 2023 | | | 1,164 | | | 129 | | | | | | | |
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The above table reflects total benefit payments expected to be paid to participants, which includes payments funded from company assets as well as paid from the plans. |
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Other |
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Prior to the separation, AbbVie employees also participated in the Abbott Laboratories Stock Retirement Plan, which was Abbott's principal defined contribution plan. AbbVie recorded expense of $67 million and $68 million in 2012 and 2011, respectively, related to this plan. In connection with the separation, AbbVie established the AbbVie Savings Plan, which is AbbVie's principal defined contribution plan, with substantially the same terms as the Abbott Laboratories Stock Retirement Plan. AbbVie employees who were eligible to participate in the Abbott Laboratories Stock Retirement Plan on January 1, 2013 automatically became eligible for the AbbVie Savings Plan. AbbVie recorded expense of $62 million in 2013 related to this plan. |
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AbbVie provides certain other post-employment benefits, primarily salary continuation plans, to qualifying employees and accrues for the related cost over the service lives of the employees. |
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